Bitcoin: The New Asset Protection Strategy in Divorce Cases

Bitcoin: The New Asset Protection Strategy in Divorce Cases

“Asset protection” has long been a strategy in divorce cases in the United States. The term “asset protection” refers to the use of a legal strategy to hide or protect assets from the courts. Bitcoins, the relatively new internet currency, is likely to become the next asset protection frontier.

In divorce cases, asset protection can take many forms. Sophisticated asset protection techniques involve transferring money to an account abroad, the formation of legal entities (trusts, corporations, limited liability companies) and other methods.

The simplest and most unsophisticated form of asset protection, and perhaps the most common form of divorce, is simply to have money in the form of cash (that is, inside a safe or bank safe). In this way, a person who is in a divorce process believes that they can “protect” the cash from the divorce process. The divorcing spouse may keep the existence of their spouse’s cash, divorce attorney and court, to avoid being ordered to share the cash with their spouse. This strategy may or may not be successful, but it is surely not legal because it requires the person to falsify their assets before their spouse and before the Court.

A sophisticated divorce lawyer will know how to discover hidden assets of this type by examining financial records and other means of legal discovery. However, Bitcoin has the potential to replace cash concealment as the most common form of asset protection in divorce cases. Given the structure of the bitcoin system and the ignorance of most divorce attorneys regarding bitcoins, it could become a significantly more successful method than hiding cash.

Bitcoin is the digital currency that was created in 2009 by the anonymous developer known by the pseudonym Satoshi Nakamoto. It is a currency that exists only in digital form. All bitcoins and transactions are “registered” on the bitcoin blockchain that bitcoin users update instead of a centralized authority. However, the transactions do not include names, but the digital identification of each bitcoin. Bitcoin owners keep their bitcoins in a bitcoin wallet. The wallet is not necessarily a physical wallet, but rather various methods for storing bitcoin’s digital ID. The wallet could be saved on a computer, the server of a bitcoin wallet website, or even on a sheet of paper.

While it is theoretically possible to trace the transfer of a bitcoin by examining the blockchain, one will only discover the bitcoin’s public identification key instead of the owner’s name. If the wallet is saved on a person’s computer or on a website (where a party to a divorce registered their name) it is possible to discover the existence of bitcoins. However, wallets do not have to be associated with a name. Furthermore, if a person uses a brainwallet to track a bitcoin to a specific person it becomes almost impossible through any conventional method. A wallet is the use of a memorized passphrase to store a bitcoin.

The methods to discover hidden cash will be the first approach of any divorce lawyer to discover a bitcoin asset protection plan. Unfortunately, many, if not most, divorce attorneys and judges are unfamiliar with bitcoins and the fact that bitcoins can be used to hide assets. A divorce lawyer who does not understand bitcoins cannot be expected to discover hidden assets of bitcoin. If you suspect that your spouse might be hiding assets, make sure your attorney understands the bitcoin system and how to discover bitcoin’s hidden assets.

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